Trade contests

In this paper a new benchmark case for describing international trade is an alysed: trade transactions as the outcome of contests between rival exporti ng firms. Contests between firms trigger non-cooperative strategic trade po licies by countries. In the non-cooperative subgame perfect equilibrium, on e country subsidizes its domestic firm, the other country chooses an export tax. Both exporting countries are better off than in the equilibrium witho ut strategic trade policy. (C) 2000 Elsevier Science B.V. All rights reserv ed.